Since the onset of the pandemic, the US economy has been on a path to recovery. This has allowed many borrowers to reap benefits from their forbearance plans in response to COVID-19, which have been an effective tool for risk mitigation.
An overwhelming majority of people defaulting on their loan agreements choose to defer payments (where missed payments get added on after the loan), while the remaining borrowers need a modification.
Unfortunately, for some borrowers, the pandemic has cost them their jobs permanently, and others are facing a significant drop in pay. This renders current mortgage payment reductions insufficient to help those in need of assistance – many of whom have equity, unlike during the COVID crisis.
First things first, what is HUD?
The Department of Housing and Urban Development (HUD) is devoted to producing equitable, inclusive neighborhoods with quality, affordable homes available for all.
HUD is actively creating initiatives and programs to bring fairness to the housing industry, an essential element for any community’s growth and success. Housing provides us with a stable foundation to build our lives.
Under the U.S. Department of Housing and Urban Development, the FHA offers FHA-insured mortgages. This mortgage insurance covers various properties, including:
- single-family homes
- multifamily properties
- residential care facilities
FHA Insured Mortgages
FHA mortgage insurance protects lenders if a property owner defaults on their mortgage. If this happens, FHA will claim the unpaid balance from the lender. This helps lenders take on less risk and provide more mortgage options to homebuyers.
FHA primarily funds its operations through self-generated income by collecting mortgage insurance premiums from borrowers through lenders.
This income is used to run mortgage insurance programs for the betterment of homebuyers, renters, and communities.
HUD Programs To Avoid Foreclosure
Several programs are available to help homeowners facing foreclosure and experiencing difficulty paying their monthly mortgage payments.
All borrowers in default or about to default, including non-occupant borrowers, can now access COVID-19 Recovery Options offered by the Federal Housing Administration (FHA). The reason for bankruptcy is not a factor in eligibility.
Standard Loss Mitigation Programs
FHA offers loss mitigation programs to help homeowners who are struggling financially. Here is a list of available programs.
- Informal or Formal Forbearance Plan: A forbearance plan allows borrowers to reduce or pause their monthly mortgage payments temporarily.
- Special Forbearance (SFB)-Unemployment: If borrowers become unemployed, they may be eligible for SFB. A permanent Loss Mitigation Option may be available to a borrower who is gainfully employed, and the SFB-Unemployment Agreement expires.
- Pre-Foreclosure Sale (PFS): The standard mortgage repayment plan has been temporarily suspended until October 30, 2024, and HUD must offer a new payment plan to borrowers that meet specific qualifications.
- Deed-in-Lieu (DIL) of Foreclosure: The program is currently on hold and will resume on October 30, 2024. If the borrower cannot fulfill a PFS transaction, they can return the property to HUD by offering a deed.
- FHA Home Affordable Modification Program (HAMP): Temporarily suspended until October 30, 2024, the FHA-HAMP program allows borrowers to avoid foreclosure by establishing an affordable monthly mortgage payment.
HAMP Options To Avoid Foreclosure
HAMP offers three options to help borrowers with their existing monthly mortgage payments:
- The Standalone Loan Modification adds any missed mortgage payments to the principal loan balance and extends the mortgage term to 360 months at a fixed interest rate. This resolves any outstanding arrears on the mortgage.
- With the Standalone Partial Claim option, you can add any missed mortgage payments to a separate lien on the property with no interest charged. This amount only needs to be paid once the final mortgage payment is made, the property is sold, or the loan is refinanced, whichever comes first.
- The FHA-HAMP Combination Loan Modification and Partial Claim can help you achieve an affordable monthly payment plan, settle any missed mortgage payments, and permanently modify your first mortgage’s monthly payment.
Standalone Partial Claim
A standalone partial claim refers to a COVID forbearance transition-specific partial claim that is not a part of any modification process.
Eligible borrowers for this option must fulfill these requirements:
- This is the perfect opportunity if you are 4-12 months delinquent on your mortgage payment.
- You need to have sufficient income to make your typical mortgage payments monthly.
- You must occupy the property as a residence.
The FHA COVID-19 Standalone Partial Claim is designed for borrowers who can afford pre-COVID-19 payments. It uses a second lien/partial claim to transfer outstanding payments (such as forborne principal, interest, taxes, and insurance or PITI) to the end of the loan. The goal is to help borrowers catch up with their payments.
How is a Standalone Partial Claim used in a loan modification?
The Standalone Partial Claim scheme enables placing mortgage payment arrearages in a subordinate lien against the property at a zero interest rate.
The payment for the Partial Claim is only necessary once the last mortgage payment is made, the loan is refinanced, or the property is sold – whichever comes first.
Standalone Partial Claim And Forbearance 101
This is a difficult-to-understand mortgage relief. So here we will explain it again.
If you agreed to not make payments for a while because of COVID-19 but now want to start making regular payments again, you can apply for a particular type of payment called a standalone partial claim.
If you have not paid your bills during forbearance, FHA will combine them into one big payment. This payment is called a partial claim, including all the money you need to pay back.
When you ask for money from your mortgage company, it will be recorded as an extra loan on the title of your home. You have to repay this loan when you are done paying your regular mortgage.
Pay your mortgage as you did before COVID. Then, everything will remain the same with your regular monthly mortgage payments.
When your mortgage loan ends, you must repay the money you borrowed.
Get Help To Understand Your Mortgage Current Situation
If you are still overwhelmed with the information on mortgage relief programs and don’t know where to start, it is crucial to get professional help.
A qualified real estate attorney can review your situation and guide you on the best option.
FHA-HAMP Combination Loan Modification and Partial Claim
The Partial Claim Mortgage is a convenient and advantageous option that only needs to be repaid once the property is sold or the initial mortgage has been paid off in full.
If you meet the requirements, you can get the Partial Claim with the loan modification, a subordinate lien with zero interest. It covers a portion of the amount you need to resolve and provides a principal deferment.
When you include the second lien/partial claim, the forborne PITI is due at the maturity of your loan. Without the second lien, this amount will be added to your loan balance and then modified – with or without arrearages included.
The remaining amount is added to your first mortgage’s principal loan balance and extends the term to 30 years (360 months) with a fixed interest rate.
Please Explain Again the Loan Modification and Partial Claim
If you get a loan modification, the FHA can help with a partial claim loan. They will add your missed payments to the end of the loan. This way, you do not have to pay for everything simultaneously.
After your FHA-HAMP Combination Loan Modification and Partial Claim are approved, you will get papers that show the changes made to your loan.
The documents will have information about the loan. This includes:
- how much money is owed
- what is the interest rate is
- how much do you need to pay each month
- when it needs to be paid off
FHA may send you documents asking for some or all of the mortgage payments you missed. This is called the partial claim, which will be attached to your home.
Your loan documents show when you need to pay back the partial claim. It gets more expensive once it is due on the new date.
Sometimes, a partial claim can include more money than the missed mortgage payments. This extra money may come from the FHA and be part of your loan balance that gets put off for a while.
Settling a Partial Claim with Payment
The United States Department of Housing and Urban Development (HUD) will place a lien on the borrower’s property in the name of the amount owed.
Therefore, any sale or refinancing activity this person makes must include settling their partial claim before they can take any such actions.
Is a partial claim a second mortgage?
If you execute a partial claim, it gets recorded as a subordinate lien on the title, separate from your first mortgage.
It will appear on your title report underneath your first mortgage in the amount listed in your partial claim documents.
Because the partial claim does not collect interest and often gets recorded as part of a loan modification or a forbearance transition, it’s slightly different from a traditional 2nd mortgage. For refinancing or selling, though, it gets viewed as a subordinate lien on the title, just like a 2nd mortgage.
Can you refinance if you have a partial claim?
After your partial claim is executed and you are back on track with your regular monthly mortgage payments, you can complete a refinance of your loan with a new lender (if you qualify).
The new lender will likely give you a new loan with one balance that includes the partial claim amount.
If you’ve been offered a partial claim, it is always good to have an attorney review the documents to fully explain what you’re looking at (and how it will impact your mortgage).
Many borrowers need to realize that the partial claim debt should not be included as part of their principal balance on their first mortgage and is treated separately. As a result, it can become a lien on the property without making extra monthly payments to reduce this amount unless you receive a separate payoff statement.
COVID-19 Loss Mitigation Waterfall
At the beginning of 2023, the FHA introduced changes to their options for helping homeowners facing financial difficulties, also known as a “waterfall” method. These changes simplify and update the existing options, reduce the amount of documentation required, and offer more payment reduction choices for eligible homeowners.
The expected end date for the Covid-19 emergency declaration is May 11. However, the FHA is requesting a more gradual ending rather than an abrupt one.
Therefore, the FHA stopped the FHA-Home Affordable Modification (FHA-HAMP) program for a while. They did this to make figuring out how much money people should get back easier.
Mortgage companies have to help people with FHA loans if they cannot make payments. Therefore, it does not matter why the person needs to catch up on their payments.
Changes To The FHA Waterfall Process And Partial Claims
The loss mitigation toolkit was changed by the FHA as well. The FHA raised the maximum partial claim amount from 25% of the mortgage’s unpaid principal balance to reach the 30% allowed.
So, a partial claim will then become an interest-free loan. Eligible borrowers can use partial claims to bring their mortgage up to date.
When you finish paying off all the mortgage payments, you will get your money back. Or if you refinance or sell the house, you will also get your money back.
Starting April 30th, you can utilize the HUD partial claim to settle any missed payments from homeowners affected by Covid-19 recovery modifications. Note that the partial claim cap for this option will remain at 30%.
Benefits to HUD Partial Claims
- More people who cannot pay their loan servicer can now get help. They will be able to pay 25% less, even if the interest rates have increased.
- People who qualified for or used Homeowners Assistance Funds (HAF) can use unique options to help them avoid defaulting on their home loans. This will help them keep their house.
- The loan servicer can get money when they help people with Covid-19 problems. This money was available after this.
Are you eligible to refinance if you've received a partial loan claim?
Once your partial claim payment is fulfilled and you have resumed making monthly mortgage payments on time, refinancing to a new lender (assuming you qualify) can be the next step. This will give you access to a more recent loan that consolidates your prior balance with the partial claim amount for one unified balance.
How can I request a payoff statement?
To receive a payoff statement, include the FHA Case number, property address, and names of the parties on the mortgage. If you are not authorized to request this information, kindly submit a third-party authorization form. If your partial claim relates to COVID-19, attach your promissory note. A promissory message is a legally binding agreement detailing an individual’s debt repayment commitment.
Consult With a Foreclosure Defense Attorney
If you are facing foreclosure or need help understanding the FHA Partial Claim process, a qualified foreclosure defense attorney can provide advice and guidance. In addition, they can review your loan documents for discrepancies and ensure all legal procedures are met, giving you greater peace of mind.
Are you still determining if an FHA Partial Claim suits your circumstances? A qualified foreclosure attorney can assess not only the programs of the FHA modification but also evaluate your situation to determine eligibility and answer questions like: What are partial claims signing? or Does a partial claim hurt my credit?